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Life Insurance FAQ

Q- What is life insurance?

 Ans- Life insurance is a contract between an insurance company and the insurance policy owner where the insurance company pays a cash amount to the beneficiary mentioned in the policy upon death of the insured person. The policy owner promises to pay a predetermined premium to the insurance company at regular intervals to the insurance company to avail this. Purpose of life insurance is to provide financial security to dependents, taking care of their education needs, loan repayments, and continuation of regular financial activity unhindered in case of demise of the insured.

 

Q- What is term life insurance?

Ans- Term life insurance is a basic form of insurance that offers death benefit for a fixed duration (ranging from 5-30 years) in return of the specific premium. If the insured dies within this specified term, the insurance company pays the amount to the beneficiaries mentioned in the policy. It builds no cash value and simply terminates if the insured outlives the term.


Q- Why should I buy term life insurance?

Ans- Term insurance offers one of the most affordable ways to cover your liabilities if you die during the term of the policy. It is one of the most effective life insurance if you have people dependent on your earnings, have financial liabilities like loans and want to secure the financial future of the family. Many insurance companies offer term insurance for a period of 5, 10, 15, 20 and 30 years thus offering relatively long term of coverage.


 Q- What are term life insurance advantages?

Ans- The premiums of term life insurance are lower than other available life insurance options thus allowing you to buy higher levels of coverage that might be useful when the need is greatest. It is good for covering specific needs that will automatically disappear in time, such as mortgages or family income needs for children. Term insurance is an effective way to get the most coverage at the low cost for up to 30 years.

 

Q- What are term life insurance disadvantages?

Ans- Although the premium of term insurance is very low in younger age, once the policy term expires after the maximum duration, premiums increase as they are primarily age related. Generally, the policy doesn’t offer cash value or paid-up insurance so nothing is paid to the insured if he survives the policy duration


Q- When is term life insurance the right choice?

Ans- If you wish to have a life insurance with good coverage without having to pay large amount as premium, for a fixed duration, term insurance is an ideal option. It is most suitable to cover your fixed goals that may disappear over time.


Q- How much term life insurance do I need?

Ans- Your coverage need will depend on your individual circumstances. Factors you should consider include anticipated final expenses, living expenses for your surviving family members, any outstanding loans (e.g. auto and credit cards), the outstanding balance on your mortgage, anticipated education costs for your children, estate taxes, and business continuation expenses.


Q- What affects the premium rates of my term life insurance?

Ans- Factors affecting the premium of term life insurance are:

• Age of the insured – Life insurance premiums are age linked. Younger the person lesser the premium. Life insurance premiums vary for different age brackets.

• Smokers or non-smokers – For many insurance companies, premiums are different for smokers and non-smokers. Smokers or tobacco users may have to pay higher premiums depending upon the insurance company norms.

• Sex of the insured– term insurance for males will cost more than that for females for the same sum assured.

• Medical conditions – Medical condition of the person being insured is important and medical check-up compulsory for term life insurance. The premium may vary as per the individual medical condition.

• Dangerous hobbies – If you indulge in dangerous hobbies like parachute jumping, race car driving etc. you might either be declined insurance or may have to pay higher premium based on the insurance company policy.


Q- Can the premium of my term insurance change?

Ans- Premium of a term insurance remains the same throughout the term of the policy provided all other factors remain the same.


Q- Is medical examination necessary for the term insurance?

Ans- Medical examination is necessary for all term insurance plans.


Q- Is my life insurance policy convertible?

Ans- Many term life insurance policies are convertible to other traditional plans like endowment plans or money back plans etc. Convertible policies can generally be converted to permanent policies within a specified period of time from policy issue, without providing new evidence of insurability (unless you increase your benefits). It needs to be identified at the time of buying the policy for the convertibility

feature.


Q- Will my final premium rates be the same as the rates you quoted on the Web site?

Ans- Rates quoted on the website depend on the basic information you entered but the final rates are determined by the insurance company through a process called “underwriting”. Underwriting includes a review of your current health status, medical history and family history among other things and your rating class may come out to be different that what you entered. Therefore final rates being same as the rates quoted by the website is not guaranteed.


Q- What is the Accidental Death Benefit rider?

Ans- The accidental death benefit rider is an optional policy provision where in event of death due to accident, an additional amount is paid by the insurance company. This amount is over and above the basic sum insured that the beneficiary will get for your term insurance.


Q- What is the Waiver of Premium rider?

Ans- The waiver of premium rider is an optional provision that protects your life insurance policy to be cancelled even when you are not able to pay the premiums in event of your total disability. The payment of life insurance policys premium is waived off.


Q- What is a pre-medical exam and how do I schedule one?

Ans- To take the term life insurance, you need to undergo a medical examination called the pre-medical. A basic pre-medical exam includes the following:

• Height/weight measurements

• Blood pressure readings

• Heart rate readings

• Urine sample

• Blood sample

• Medical history questionnaire

After receiving your completed application form, the insurance company representative contacts you to arrange your exam at a time and location most convenient to you.


Q- Why am I being asked for my financial information?

Ans- Any insurance company giving life insurance will seek your personal financial information. They need this to determine the coverage amount that can be allowed.

• Annual income is required to calculate the coverage amount allowed

• Net worth gives a fair picture of the family financial position and potential loss in the event of the insureds death.

Going through this information also helps control fraud and limit excessive insurance situations.


Q- Can I take more than one term plan?

Ans- Yes, you can take more than one term insurance plan. It needs to be declared to the insurance companies regarding the same.

Source: easypolicy


Life Insurance Terms, Simplified

Riders

 

Riders attached to the life insurance policies are additional benefits which you will get in addition to benefits of the base policy. Riders can be in the form of accidental death benefit, critical illness rider or waiver of premium.

 

Accidental death benefit

 

Accidental death benefit is attached as a rider in life insurance policies which means that if the cause of death of the life assured is accident then the nominee of the life assured will get additional amount. For e.g. Mr. Shah has sum insured of Rs. 10 lakhs and this policy contains an accidental death benefit of Rs. 10 lakhs; now in case Mr. Shah dies in an accident then his nominee will receive Rs. 20 lakhs (Rs. 10 lakhs + Rs. 10 lakhs) from the insurance company. If Mr. Shah would have died for any reason other than accident then his nominee will receive just Rs. 10 lakhs only.

 

Waiver of Premium

 

Waver of Premium means that in case of total disablement of the life assured in which he is no longer able to work, insurance company will waive off future premiums but his life insurance policy will continue as if premium is paid regularly and life assured will get all the benefits of the policy without paying the future premiums.

 

Free Look Up Period

 

Free look up period is a grace period which a policyholder gets in case policys feature and benefits are not as per your requirement. In this period you have the option to cancel the policy within stipulated time which is usually 15 days from the date of receipt of the policy documents.

 

Revisionary Bonus

 

Revisionary bonuses are the bonuses which are declared every year by the insurance company depending upon the performance of the insurance company. Revisionary bonuses increase the maturity amount receivable at the time of maturity of the policy.

 

Terminal Bonus

 

Terminal Bonus as the name suggest is only paid once at the time of maturity of the policy. If a policyholder surrenders the policy before maturity then terminal bonus will not be paid.

 

Premium Allocation Charge

 

Premium allocation charge is the charge that is directly deducted from the annual premium. After deduction of this charge rest of the amount is available for investment.

 

Mortality Charge

 

Mortality Charge is the charge which is deducted for providing you insurance cover. This charge is dependent upon Age, health history of life assured and the amount of sum assured opted for.

 

Administrative Charge

 

Administrative Charge is the charge which is deducted for administration functions of the policy. This amount is deducted monthly (sometimes yearly as well) and is usually a fixed amount.

 

Fund management Charge

 

Fund management Charge is the charge deducted for managing the investment portfolio of the policy. This charge is usually a certain percentage of the funds managed by the portfolio manager.

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